Question

An investment had a nominal return of 10.4 percent last year. The inflation rate was 4.1 percent. What was the real return on the investment?

a. 6.05%
b. 14.93%
c. 10.32%
d. 6.72%
e. 5.71%

Answer 1

The real return on the investment is calculated by subtracting the inflation rate from the nominal return, which results in a real return of 6.3%. The closest provided option to this is 6.05%, so the correct answer is (a).

Step-by-step explanation:

To calculate the real return on an investment, we need to adjust the nominal return by the rate of inflation. The formula to find the real interest rate is the nominal interest rate minus the inflation rate.

Using this approach:

Nominal Return = 10.4%
Inflation Rate = 4.1%
Real Return = Nominal Return - Inflation Rate
Real Return = 10.4% - 4.1%
Real Return = 6.3%

The value closest to this calculation in the options provided is 6.05%, so answer (a) would be the correct choice.